Volkswagen is to stop building its Golf model in Brussels, with the expected loss of up to 4,000 jobs.
The Golf will be made in two German factories only
Europe's largest carmaker will continue making the best-selling compact model at Mosel and Wolfsburg in Germany.
The group added it planned to keep on only 1,500 workers at the Belgian plant which currently employs 5,400 workers.
Meanwhile, German prosecutors have arrested the former head of VW's employee council as they investigate a corruption scandal at the carmaker.
Klaus Volkert was one of three key figures at the car giant to quit when the scandal broke in the summer of 2005.
In recent months the troubled company has embarked on a tough restructuring drive in the face of falling profits, increased competition and rising costs.
VW has plans to cut 20,000 jobs across its operations - and has said that its European factories are not working to full capacity.
"All economic alternatives are being explored with a view to securing as many jobs as possible in Brussels," VW said.
"Following cuts in Germany, other locations must now be incorporated into the restructuring programme so as to ensure competitive production and capacity utilisation at the Volkswagen plants in Western Europe as a whole,"
About 193,000 Golf cars are expected to have been built in Brussels in 2006 - and 11,000 VW Polo cars.
Carmakers are facing difficult times as competition increases, raw material costs rise and consumers prove tough to lure into buying new models.